STATE Vs. PREM NATH

JUDGEMENT

(1.) SMT . Parsini Devi, who was a partner having 40 per cent share in the firm of M/s. Metal Fabriks (India) Ludhiana, died on 19-8-1969. In computing the principal value of the estate of late Parsini Devi, the Assistant Controller of Estate Duty included a sum of Rs. 93,480.00 on account of the share of the deceased in the goodwill of the firm M/s. Metal Fabriks (India) Ludhiana. The Zonal Appellate Controller confirmed the order of the Assistant Controller, but the Income-tax Appellate Tribunal, following a judgment of the High Court of Punjab and Haryana in Controller of Estate Duty v. Ved Parkash Jain, 96 ITR 303 = (1974 Tax LR 339) (Punj and Har) held that the share of goodwill of a deceased person in the assets of a firm did not pass on his death and, therefore, it could not be taken into account in computing the principal value of the estate of the deceased, The addition of Rs. 93,480 was, therefore, deleted. The Tribunal did not go into the question, whether the share of goodwill was correctly valued at Rs. 93,480. At the instance of the Revenue, the following question has been referred to us for our decision:-" Whether on the facts and in the circumstances of the case, share of goodwill of a deceased partner in the assets of a firm passes on his death under the Estate Duty Act. "

(2.) THE reference came before two of us initially. We referred it to a Full Bench as we thought that the decision in Controller of Estate Duty v. Ved Parkash Jain, 1974 Tax LR 339 (Punj & Har) required reconsideration. That is how the matter has now come before the Full Bench.

(3.) IT is useful to mention at this juncture that under Section 14 of the Indian Partnership Act, the goodwill of the business of a firm is expressly stated to be the property of the firm and Section 55 also provides for the sale of the goodwill either separately or along with other property of the firm after dissolution of the firm. In Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla, AIR 1970 SC 1147, the Supreme Court referred to Section 14 of the Partnership Act and observed:-" Goodwill of the firm is expressly declared to be the property of the firm. " Referring to Section 55 which makes provision for the sale of goodwill after dissolution, the Supreme Court further observed:-